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Executive Summary #1229es

October 23, 1998

October 23, 1998 | Executive Summary on

Executive Summary: The Department of Energy's Report on the Impact of Kyoto: More Bad News For Americans

In December 1997, the Clinton Administration agreed to the terms of the Kyoto Protocol, a global climate agreement negotiated by more that 160 countries in Kyoto, Japan, under the United Nations Framework Convention on Climate Change. The Kyoto Protocol mandates that the United States reduce its greenhouse gas emissions in the 2008 to 2012 period to levels 7 percent below 1990 levels. The United States Senate has not ratified the Kyoto convention, yet the Administration is rushing to implement its severe terms, which would force Americans to pay more for basic goods and services while sacrificing their personal freedoms to address an unproved environmental threat.

Although the fight over the existence and possible consequences of global warming rages on in the scientific community, the debate over the possible economic consequences of implementing the Kyoto Protocol should subside quickly. The knockout punch came from a recent report issued by the U.S. Department of Energy, which effectively refutes the Clinton Administration's claim that the Kyoto Protocol will have few, if any, negative consequences for the U.S. economy. To the contrary, the report estimates that, in 2010:

  • Gasoline prices would likely increase about 66 cents per gallon, from an anticipated baseline price of $1.25 without the Protocol's restrictions to $1.91 a gallon; and
  • Electricity would cost 86.4 percent more than it would otherwise.

The study by the Energy Information Administration, Impacts of the Kyoto Protocol on U.S. Energy Markets and Economic Activity, analyzes in depth the effects of the Kyoto Protocol on energy prices and the overall U.S. economy for 2008 to 2012. It states that:

[T]he introduction of such reduction [7 percent below 1990 levels] would affect both consumers and businesses. Households would be faced with higher prices for energy and the need to adjust spending patterns. Nominal energy expenditures would rise, taking a larger share of the family budget for goods and service consumption and leaving less for savings. Higher prices for energy would cause consumers to try to reduce spending not only on energy, but on other goods as well. Thus, changes in energy prices would tend to disrupt both savings and spending streams. Energy services also represent a key input in the production of goods and services. As energy prices increase, the costs of production rise, placing upward pressure on the nominal prices of all intermediate goods and final goods and services in the economy, with widespread impacts on spending across many markets.

The Energy Department study clearly contradicts an analysis by the White House Council of Economic Advisers in a July 1998 report outlining Kyoto's potential economic impact. In The Kyoto Protocol and the President's Policies to Address Climate Change, the CEA estimates that gasoline will increase to $1.31 a gallon in 2010 and that electricity will increase by about 3.5 percent to 5.1 percent.

The Department of Energy study more closely mirrors the conclusions of a 1998 study conducted by a nationally recognized econometric firm, WEFA, Inc., which concludes that the consequences of the Kyoto Protocol would be severe. According to WEFA, meeting the terms of the Kyoto Protocol would nearly double the cost of energy and electricity prices, raise gasoline by about 65 cents per gallon, cost 2.4 million U.S. jobs, harm America's competitiveness, reduce state tax revenues by almost $100 billion, and reduce family income dramatically.

Both studies show that restrictions on energy use or production will have drastic consequences for Americans, from affecting what they feed their families and how they heat their homes to determining what cars they will drive. In addition, these restrictions will affect economic output. According to the Energy report, for instance, if the terms of the Kyoto Protocol are implemented, America's gross domestic product (GDP) in 2010 will decline by about $397 billion--far more than the Administration's estimates of $1 billion to $5 billion.

Now that the Clinton Administration has received the studies on the economic consequences of the Kyoto Protocol from the Department of Energy and WEFA, it would be foolish to move forward with implementation of the treaty. The Kyoto Protocol could impose hidden costs on every American that amount to at least an additional 14.5 percent income tax. Until it can be proved that global warming in fact occurs and is caused directly by human activity, the United States should not ratify any environmental treaty carrying such drastic consequences.

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